Commissioner of the Australian Federal Police v Pharmacy Depot Hurstville Pty Ltd

1. [1]

   By an amended summons filed 10 March 2017 the plaintiff sought restraining orders, custody and control orders, and forfeiture orders against the property of the first defendant, Pharmacy Depot Hurstville Pty Limited, against the second defendant Yakoop (Jacob) Youssef and the third defendant Hamza Amin Zoghbi pursuant to the Proceeds of Crime Act 2002 (Cth) (the POCA) on 8 May 2015.

2. [2]

   On 8 December 2015 the plaintiff obtained restraining orders pursuant to s 18 of that Act against property associated with the first defendant Pharmacy Depot Hurstville Pty Ltd as well as the second and third defendants. The plaintiff also obtained on that date a custody and control order pursuant to s 38 of the Act against the first defendant’s property.

3. [3]

   The orders arose out of an investigation involving suspected fraudulent Pharmaceutical Benefit Scheme claims made by Pharmacy Deport in respect of a specialised formula for children and adults born with rare inborn errors of protein metabolism, which product is manufactured by Vitaflo Australia Pty Ltd. The second and third defendants are the shareholders and directors of Pharmacy Depot.

4. [4]

   Between 30 November 2013 and 12 March 2015 Pharmacy Deport made 4,743 PBS claims for 17 different Vitaflo products. Department of Health records show that Pharmacy Deport was identified as the top distributor in Australia for nine of the products. As a result of the claims, $18,660,260. 95 was paid to the Pharmacy Deport account nominated for PBS payments.

5. [5]

   The authorised officer who swore the affidavit in support of the orders sought deposed to a suspicion that the defendants had committed one or more of the following offences:

6. [6]

   A provisional liquidator was appointed to Pharmacy Depot in on 4 December 2017, and on 25 May 2018 Pharmacy Depot was wound up.

7. [7]

   By an amended notice of motion filed 4 May 2018 the Commissioner sought leave pursuant to s 471B of the Corporations Act 2001 (Cth) that he be granted leave to proceed to continue the proceedings against the first defendant. The Commissioner also sought pursuant to s 39(1)(a) of the POCA that the restraining orders made on 17 April 2015 as varied on 14 May 2015 in respect of property specified in schedule 1 to the orders be varied as follows:

8. [8]

   One of the principal legal issues to be determined in the proceedings is the relationship between the right of the liquidators under the Corporations Act, particularly s 474, to get in and deal with the company property for the benefit of the company’s creditors, and the right of the Commissioner to restrain and seize property in the possession of the company by reason of the crimes alleged to have been committed pursuant to the provisions of the POCA.

9. [9]

   On 13 July 2018 the liquidators filed a notice of motion seeking the following orders:

10. [10]

    The parties accept that the effect of the first defendant’s notice of motion of 13 July 2018 is the seeking of the hearing of a separate question to resolve what is in substance the dispute between the parties, namely, whether the provisions of the POCA take precedence over the provisions of the Corporations Act. Pharmacy Depot submits that the following form of the question is appropriate for separate determination:

Legal principles

1. [11]

   In Southwell v Bennett [2010] NSWSC 1372, Hallen ASJ (as his Honour then was) said at [15]:

2. [12]

   In Crawley v Vero Insurance Ltd & Ors [2012] NSWSC 593, Beech-Jones J adopted those principles and made five further points as follows:

3. [13]

   In Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103 Ward JA made reference to a number of cases that set out principles governing the separate determination questions and said:

Submissions

1. [14]

   The liquidators submitted that the core issue between the parties could be formulated into a precise question, capable of discrete determination through a separate hearing. They submitted that there appear to be no controversial facts.

2. [15]

   The liquidators submitted that the central reason for ordering a separate determination was to reduce the costs of the parties. That would be achieved by avoiding running the same legal argument twice; the first on the application for leave under s 471B of the Corporations Act and, secondly, at the final hearing.

3. [16]

   The liquidators submitted further that if the separate question was resolved in favour of the Commissioner, then the liquidators would only have a very limited role in the balance of the proceedings. The written submissions suggested that that limited role would be dealing with the matters in prayers 2 and 3 of the notice of motion to exclude property pursuant to s 24 of the POCA. If the liquidators were successful on the separate question then the only remaining issue relevant to them is likely to be the payment of a penalty. In that way, whatever the outcome, there would be a speedy outcome for the creditors.

4. [17]

   The liquidators submitted that the resolution of the separate question would involve legal argument only. In that way it could be determined at an early time and would not be of lengthy duration.

5. [18]

   The Commissioner submitted that the proposal to proceed by separate question seeks to forestall the determination of his application for leave to proceed with the substantive proceedings. Proceeding in that way risks preventing him, in his capacity as the Proceeds of Crime Authority, from utilising the procedures available under the POCA to pursue the objects of the Act.

6. [19]

   The Commissioner submitted that the fact that the claim that the liquidators wish to pursue can be progressed in accordance with the specific provisions of the POCA highlights that the separate question proposed is unlikely to save money or costs. The Commissioner pointed in that regard to prayers 2 and 3 in the notice of motion.

7. [20]

   The Commissioner submitted that the question as articulated is broad and lacks the precision or detail required to qualify for consideration as one for separate determination. Further, the liquidators have failed to identify the facts upon which the question falls to be determined. In the absence of those facts the question is wholly hypothetical. The Commissioner set out a number of issues which would need to be determined on the separate question when no facts are articulated.

8. [21]

   The Commissioner submitted that an understanding of the facts in which statutory provisions fall to be considered is fundamental to the exercise of statutory construction in reliance on Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at [78], and Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27 at [47].

9. [22]

   The Commissioner submitted that whether the defendants engaged in conduct that constitutes an indictable offence for the purposes of the Criminal Code is an issue that will require hearing notwithstanding the determination of the separate question.

10. [23]

    The Commissioner submitted that the novelty of the issues raised by the separate question gives rise to a high probability of one or more appeals from that determination. This would result in fragmentation of the proceedings and delay its resolution.

11. [24]

    The Commissioner submitted that by the terms of s 471B of the Corporations Act it is necessary, in any event, for leave to be given before the separate question can proceed. In that way the Court at least must consider whether it is appropriate for leave to be given on the basis of the argument sought to be determined at the separate question hearing.

12. [25]

    The Commissioner in his oral submissions pointed out various provisions in the POCA to suggest that what was being sought by the liquidators was effectively either an advisory opinion or a decision on a hypothetical question. This was because the property was already in the custody and control of the Official Receiver pursuant to the restraining orders and the custody and control orders made some years before the Liquidators were appointed. Further, the provisions of the POCA are prescriptive and are to be contrasted with the general and permissive terms of s 474 of the Corporations Act.

13. [26]

    The Commissioner submitted further that it would be necessary for the Liquidators to make an application under one of the exclusionary provisions of the POCA, and that a determination in reliance on those sections involved consideration of precise facts. In that way the determination of the separate question put forward, or even modifications to it, was at too high a level of generality. The Commissioner submitted further that the provisions of the POCA meant that even if the liquidators were unsuccessful on the determination of the separate question they would be in a position to continue to make application under the exclusionary provisions. In the same way, it was submitted, if the Commissioner was unsuccessful on the separate question he would not be precluded from making a further application for orders under the POCA.

14. [27]

    In response, the liquidators submitted that there was no need for any particular factual assumptions to be made. If the general factual matters were assumed in favour of the Commissioner, the separate question could be adequately answered.

15. [28]

    However, in the liquidators’ submissions in reply it was said that the resolution of the question could be determined on the assumption of the following matters:

Consideration

1. [29]

   Section 471B of the Corporations Act provides:

2. [30]

   In my opinion, before an order could be made for the hearing of a separate question it would be necessary for leave to be granted under this section. The restriction prevents “a person” from proceeding with a proceeding in a court against the company. An application for the hearing of a separate question is embraced by the words “or proceed with” the present proceedings. In those circumstances, it is not possible as the liquidators have suggested, to avoid two hearings where the legal issue between the parties will need to be determined to a greater or lesser extent.

3. [31]

   I accept that, on an application for leave under s 471B, there would not need to be any lengthy or detailed argument to persuade the Court that there was a serious question to be tried on that issue to justify the grant of leave in circumstances where the Commissioner has no right to lodge a proof of debt. Indeed, I note what was said by counsel for the liquidators, that they would consent to leave being granted for the limited purpose of determining the separate question. If I was otherwise minded to order the hearing of a separate question, I would grant leave under s 471B.

4. [32]

   The parties were agreed on the principles that apply to a consideration of whether a separate question should be ordered. Those principles are contained in the authorities earlier set out.

5. [33]

   However, I am not persuaded that there is any utility in the determination of a separate question. Moreover, I have considerable difficulty seeing how the question could be resolved when it is effectively at such a high level of generality.

6. [34]

   The desire of the first defendant to minimise the costs associated with these proceedings is understandable and is, in any event, entirely consonant with s 56 of the Civil Procedure Act 2005 (NSW). However, the various provisions of the POCA point against the separate question being a straightforward one to formulate or ultimately determine. The question cannot be, and is not, posed in terms of whether there is inconsistency between the provisions of the POCA and the Corporations Act or whether the provisions of one of those Acts has precedence over the other. Both are directed to different ends although the factual situation in the present matter indicates a tension, and possibly a collision, between those objects in some circumstances.

7. [35]

   The matter is not resolved by simply pointing to inconsistency. Orders were made under the POCA sometime before the liquidators were appointed. The result is that it is necessary to find some provision within the POCA which enables the orders already made to be revoked or set aside. There are a number of exclusionary provisions. In the first place, and at the stage the proceedings have reached, s 42 is relevant. That section provides:

8. [36]

   There is first the difficulty of the time limits in which such application can be made. Assuming that problem is overcome, it is doubtful that paragraph (5)(a) could be satisfied. The alternative in paragraph (b) is that it is otherwise in the interests of justice that the orders should be revoked. Any determination which requires an examination of the interests of justice is essentially a factual enquiry. It is not self-evident, for example, that the mere fact that liquidators have been appointed, when taken together with s 474 of the Corporations Act, means that the interests of justice require the revocation of the orders under the POCA. In that way there would be no utility in making assumptions of fact in the Commissioner’s favour, as the first defendant has suggested, to determine the separate question.

9. [37]

   Other provisions to exclude property from constituting “proceeds” include s 73 where a forfeiture order has been made or is to be made. Section 73 provides:

10. [38]

    The Commissioner may now, subject to leave being granted under s 471B, seek a forfeiture order under s 47 because six months have elapsed from the making of the restraining orders. The liquidators would need to establish one or more of the matters in paragraphs (c) or (d) of sub-s (1) to have the property excluded. That involves a consideration of the definition of “proceeds” and “instrument” in s 329, and may involve a consideration of the circumstances when property ceases to be “proceeds” or an “instrument” under s 330. In any such enquiry, it is clear that the issues are both factual and legal to determine if the property is not derived from unlawful activity.

11. [39]

    Similarly, s 94 deals with excluding property from a statutory forfeiture order under s 92. In each case, it is necessary for particular matters to be proved by the person seeking to have the property excluded.

12. [40]

    When those provisions of the POCA are considered, they tend to suggest that the provisions of both Acts are able to sit together and can operate in a complementary fashion. Significantly, for the present application, they suggest that a question enquiring into the supposed inconsistency of the Acts would not resolve the claim that the liquidators make and which they want resolved by the separate determination. That is because, before inconsistency could be asserted, the liquidators would need to demonstrate that they could not bring themselves within any of the exclusion provisions, or the provisions of s 24. All of those matters involve factual enquiries. It would not be possible to assume facts for that purpose. That is the more so, if those facts were only to be assumed for the purpose of the separate question.

13. [41]

    The liquidators drew attention to the Court of Appeal’s decision in HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 to suggest that facts could simply be assumed for the purpose of the determination of the separate question. However, not only did all parties in that matter seek the hearing of the separate question, they all ultimately agreed that the issue assumed for the separate determination would not be re-visited at the final hearing: see at [81]. It is difficult to see how there could be any such agreement in the present case. The liquidators would need to assume that, in the first instance, the Commissioner had lawfully obtained orders under the POCA, which would be to accept that the property amounted to “proceeds” within the meaning of that Act. That assumption could not be maintained at any further hearing when it was sought to set aside the orders made in favour of the Commissioner, because such an assumption would be inimical to any basis for exclusion under the POCA.

14. [42]

    Seen from a different perspective, on the assumption that the liquidators obtained a ruling that the there was an inconsistency and that they, as liquidators, had the right to have the funds vested in them pursuant to s 474, that ruling would not of itself set aside the orders that have already been made under the POCA. Those orders are orders of a superior court that would need to be set aside. They could, presumably, only be set aside in one or more of the ways already discussed by application under the POCA. Such an application would involve factual determinations. In that way, any determination of the separate question would only be the first step in the process of freeing the funds from the reach of the POCA.

15. [43]

    Of course, as I have already noted, the separate question does not, in its terms, refer to inconsistency. It simply asks if the property, the subject of the restraining orders, should be delivered up into the control of the liquidators. If such a question must necessarily be answered by a finding of inconsistency, the question would need to be more defined to identify the precise circumstances that inconsistency would result in a favourable outcome for the liquidators, because it cannot be suggested that the provisions of the POCA are invalid to the extent that they apply to the property of any company which is in liquidation or about to go into liquidation. On the other hand, if the question is not answered by a finding of inconsistency, it is difficult to see how the result would come about other than by application of the aforementioned provisions of the POCA to have the property excluded from that Act’s provisions.

16. [44]

    Even if the matters mentioned were able to be resolved satisfactorily by a determination of a separate question, the likelihood of an appeal is relevant. The first defendant drew attention to what I said in BNY Trust Company of Australia Limited v MMJ Real Estate (WA) Pty Ltd [2018] NSWSC 1052 at [28]:

17. [45]

    The distinction in this matter is that the legal point sought to be ventilated must be regarded as a novel one. The only case of any similarity to the present is the decision of the Court of Appeal of the Supreme Court of Victoria in Loo v Director of Public Prosecutions (Victoria) [2005] VSCA 161. That involved an apparent inconsistency between the provisions of the Corporations Act and the Confiscation Act 1997 (Vic). The matter was ultimately resolved by reference to s 5G of the Corporations Act. As far as the parties are aware, the issue raised in the present case, that is, an apparent conflict between the provisions of the Corporations Act and the provisions of the POCA, has not been previously raised. That makes an appeal against any determination on a separate question far more likely despite suggestions from counsel for the first defendant that it was unlikely the liquidators would appeal because of a scarcity of funds to do so.

18. [46]

    The increased likelihood of an appeal would be productive of delay in having the final hearing of the proceedings heard.

19. [47]

    I consider, for all these reasons, that little or no purpose would be served by the determination of a separate question in the terms expressed or to similar intent. I do not consider the separate determination would be confined. I do not consider that there would be a saving in time or expense. I do not consider that, even if the separate question was determined favourably to the liquidators, that would minimise to any appreciable extent the further involvement of the liquidators in the proceedings, as they submitted it would.

20. [48]

    The appropriate course is for the question of leave to proceed under s 471B to be dealt with first. Thereafter, at the conclusion of the examinations, the matter should proceed to a final hearing subject only to whether any application for exclusion is made by the liquidators under the POCA at or before the final hearing.

Conclusion

1. [49]

   Accordingly, I make the following orders:

   1. (1)

      The first defendant’s Notice of Motion filed 13 July 2018 is dismissed.

   2. (2)

      The first defendant is to pay the Plaintiff’s costs of the Motion.